The first half of this year turned out to be a very successful period for the Organisation of Petroleum Exporting Countries (OPEC) and its allies. The alliance of OPEC and other non-OPEC producers, better known as OPEC+, was about to celebrate its triumph in June and declare that the job of rebalancing the oil market was done.
China’s oil imports in the first six months of 2018 increased by 5.8 per cent from the same period a year ago. That was more than enough to absorb all the extra crude that some members of OPEC+, who weren’t fully committed to the pledged cuts, put in the market.
A major force in Chinese oil demand is the small independent refiners known as teapot refineries who make up around 40 percent of China’s total refining capacity. China’s teapots are reducing imports and cutting operations as they profit under pressure from the weakness of the Chinese Yuan, the increase in crude oil prices, and the new tax measures introduced by the government.
The teapots face higher tax bills after authorities closed a loophole that had allowed them to declare fuels such as gasoline and diesel — which are subject to a levy — as other oil products that don’t attract a consumption tax.
Almost 40 per cent of the teapots may be running at a loss, Bloomberg reported, citing Pang Guanglian, Beijing-based senior economist at the China Petroleum and Chemical Industry Federation, whose members include state-run companies as well as teapots.